How the democratisation of private equity is changing the investment landscape

Once the preserve of institutional money managers, private equity is gradually opening its doors to a new wave of individual investors. As the industry adapts to this new environment, Robin Harris, Ocorian’s Head of APAC discusses how democratisation is transforming how investments are made, with private markets emerging as one of the fastest-growing investment channels in recent years. 

According to a March 2024 McKinsey report[1], private market assets under management totalled USD 13.1 trillion by June 30, 2023, marking a near 20% annual increase since 2018. Dry powder reserves rose to USD 3.7 trillion, demonstrating the ninth consecutive year of growth.

Despite this strong performance, 2024 presented challenges. Private equity (PE) fundraising declined as a combination of higher financing costs, lower multiples, and an uncertain macroeconomic environment created a difficult backdrop for PE managers. Fund managers found themselves on the road for extended periods to raise capital.

In these tougher conditions, new funding structures have taken root, providing PE general partners (GPs) with new pools of liquidity and offering more investors the opportunity to access this asset class.

Structural innovation

Although high-net-worth individuals and wealthy families have long sought to increase their allocations to private equity, it has not always been straightforward. Investment vehicles are typically complex, requiring high minimum commitments, long lock-up periods, and capital calls.

Enter evergreen funds, which are open-ended private market funds that have gained traction among private banking investors keen to invest in private equity. Investors in evergreen funds can typically seek liquidity through redemptions granted in monthly or quarterly instalments, offering a flexible and convenient way to engage with this asset class. These funds provide increased liquidity features and potentially greater overall utilisation of capital compared to traditional drawdown funds.

The minimum commitment amounts for evergreen funds are also considerably more accessible, enabling more investors to build a diversified portfolio of private market investments from the outset. However, not all evergreen funds are created equal. Investors should pose critical questions before committing, such as ensuring access to direct and secondary investments, reviewing allocation policies, and assessing whether the fund has a diversified mix of assets at different stages of their value creation cycle.

 Private markets' exponential growth

Findings from Ocorian’s latest report, its Global Asset Monitor[2], confirm the expansion of private markets beyond traditional institutional investors. In 2024, private assets reached a record USD 14.3 trillion, demonstrating a 9.7% year-on-year growth. Over the past 15 years, private markets have expanded more than seven times larger (+618%) today than their $2.0 trillion level in 2009, far outpacing public markets.

This reflects the growth of the private asset funds industry – and comes from significant capital inflows over the last 15 years to a sector that was still emerging as an asset class in the aftermath of the global financial crisis, as well as superior performance.

Private equity alone accounts for three-quarters of the private-market total, with an estimated 11.6% growth in 2024, highlighting the robust performance of this asset class despite shifting economic conditions. Meanwhile, infrastructure investments surged by 12.4%, fuelled by increasing demand for stable, long-term asset allocation among institutional investors.

Expanding access

Evergreen funds are not the only tools being used by private equity firms to broaden access to capital. Many asset managers are exploring innovative alternatives, including the use of sidecars, feeder funds, and funds-of-private funds, which are accessible to retail investors through wealth management channels. This shift is driven by a growing base of wealthy investors diversifying beyond traditional public markets to enhance returns and gain exposure to more sophisticated products.

Findings from Ocorian’s Global Asset Monitor[3] confirm that a big challenge for GPs is that they need patient capital that will not require an exit for perhaps 10 to 12 years. Yet smaller investors, even ones with a few 10s of thousands to invest, are typically reluctant to tie up cash for that long. Some specialist platforms have developed feeder funds to pool capital from small investors, and they allow secondary market trading, though at the cost of a large bid-offer spread. 

Moreover, limited exit options mean institutional investors are struggling to recycle capital and allocate funds to new opportunities. As a result, GPs are seeking other sources of liquidity, including from individual investors.

These newer products serve distinct purposes. Sidecar vehicles allow fund sponsors to raise flexible add-on capital without over-leveraging their portfolios. Feeder funds pool capital from investors and invest into an umbrella master fund, enabling high-net-worth individuals to participate in private equity investments. Funds-of-funds offer broad diversification, mitigating downside risks while granting investors exposure to a wide array of private market opportunities.

The role of corporate service providers

As private equity evolves, the operational and administrative complexities of these structures demand sophisticated corporate service providers. Ocorian’s Global Asset Monitor[4] highlights how fund structures are becoming more complex as a greater variety of investors seek access to private markets. The increasing digitisation of fund administration and investor services is enabling a smoother investment experience, particularly for those new to private capital.

Ocorian’s expertise in fund administration, corporate services, and investor support ensures that fund managers can efficiently structure and manage their vehicles, unlocking access to a wider investor base while maintaining regulatory compliance and operational efficiency.

Looking ahead

The democratisation of private equity remains a gradual process, slowed by regulations, illiquidity, the need to educate retail investors, and the reluctance of many fund managers to open their funds to a broader audience. However, with innovation in fund structures and growing investor demand, the trend is expected to continue shaping the future of alternative investments.

For businesses and investors looking to navigate this evolving landscape, partnering with a trusted corporate services provider is essential. Ocorian’s global reach, regulatory expertise, and deep knowledge of private markets make it the ideal partner to support fund managers, institutional investors, and high-net-worth individuals in optimising their private market exposure.

Discover the future of private equity with Ocorian

Whether you are an asset manager seeking efficient fund administration or an investor exploring private equity opportunities, our team is ready to help. Get in touch with Ocorian to learn more about how our services can support your investment strategies and to unlock the full potential of your investments.